Is It Considered Fraud if I Incur Consumer Debt Before Bankruptcy?
The majority of your accumulated credit card debt can be forgiven in bankruptcy.
However, if a credit card company, or any such creditor, can prove that
you defrauded them in your bankruptcy case, you can lose your right to
discharge the debts that you owe to the lender. Incurring excessive charges without actually
intending to repay your credit card debt is considered fraud. Taking on
more debt that you know you do not have the means to repay is also another
type of fraud under the law. In this blog, we explain when excessive credit
card debt can be considered
Presumption of Fraud
A common indicator of consumer debt fraud is when a person begins to charge
substantial amounts to their credit cards right before they go to file
for bankruptcy. This can look even worse if the person consulted with
a bankruptcy attorney before engaging in such actions. The closer to the
bankruptcy date that your debts begin to accumulate, the more likely it is that you
will be accused of fraud.
If you make “non-essential” charges that exceed $675 within
90 days of filing your bankruptcy petition, they will be presumed non-dischargeable.
Consumer debt for luxury goods and services are considered non-essential
charges. Charges for made for goods or services that are needed for support
or maintenance are not considered luxury goods or services. In addition
to these stipulations, cash advances for more than $950 that are taken
out within 70 days of filing your bankruptcy petition are also presumed
The presumption of fraud can be disputed with evidence that shows the purchases
were not made with fraudulent intent. The following five elements must
be proved by the creditor if you are accused of fraud:
Misrepresentation: Fraudulent statements, omitted actions, or deceptive conduct by the debtor
Knowledge of the Falsity: Knowingly making deceptive statements or engaging in deceptive conduct
Intent to Deceive: The debtor wanted to and made actions to deceive the creditor
Justifiable Reliance: The creditor justly relied on the statements and the conduct of the debtor
Damage: Due to the deception from the debtor, the creditor was caused damage by
relying on the debtor's statements or conduct
How Will the Court Determine If Fraud Occurred?
The following factors are used to determine if a debtor has committed fraud:
- The length of time between the charges and the bankruptcy filing
- If a lawyer was consulted prior to making the charges and filing for bankruptcy
- Total number of charges made
- The total dollar amount for the charges
- The debtor’s financial circumstances when the charges were made
- If the charges exceed the credit limit of the account
- If the debtor made multiple charges on the same day
- If the debtor was gainfully employed
- The debtor’s employment prospects
- The financial acumen of the debtor
- If there was a stark change in the buying habits of the debtor
- If the purchases charged were luxuries or necessities.
If a creditor objects to you discharging their debt in bankruptcy, you
may have to litigate the case in Federal Court. Such litigation is very
expensive in comparison to the cost of an undisputed
Chapter 7, and should be avoided. That is why you need to have the issues reviewed
by a skilled bankruptcy attorney, prior to filing a bankruptcy, to determine
your potential risk.
Do you have more questions about bankruptcy or how to avoid fraud? Contact our Orlando team of bankruptcy attorneys
to set up a free case evaluation today.